Payment Terms and Deposits: Best Practices for Tradespeople

Quick Answer: For most UK trade work, take a deposit of 10-25% depending on job size, use stage payments on anything over about £2,000, and always put your payment terms in writing on the quote. If a customer does not pay, you have a clear legal path: reminder, formal letter before action (giving 14 days), then a small claims court application online -- and you can charge statutory interest of 8% above the Bank of England base rate on any late commercial debt.

Summary

Getting paid reliably is one of the biggest challenges for UK tradespeople. A clear, professional payment structure protects your cash flow, covers your material costs upfront, and gives customers confidence that they are dealing with a serious business. The deposit secures commitment and covers your initial outlay; stage payments keep cash flowing on longer jobs so you are never too far ahead of what you have been paid for; and clear final payment terms close the job cleanly. UK law gives you strong rights to chase late payments, including statutory interest and fixed compensation amounts, but the best protection is getting your terms agreed in writing before any work begins.

Key Facts

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Detailed Guidance

How much deposit should I take?

The right deposit depends on the job type, value, and how much you need to spend on materials before the customer sees any visible progress. The table below gives industry-standard ranges:

Job Type Typical Value Recommended Deposit Stage Payments? Notes
Small repair (under £500) £50-£500 None -- invoice on completion No Payment on completion is standard; taking a deposit on small jobs can put customers off
Boiler install / swap £2,000-£4,000 10-20% (£200-£800) Rarely Deposit covers the boiler order; balance on completion and commissioning
Bathroom refit £5,000-£15,000 15-20% (£750-£3,000) Yes -- 2-3 stages Deposit covers sanitaryware and tile orders; stage payment at first fix complete
Kitchen fit £5,000-£20,000 10-15% or supplier deposit pass-through Yes -- 2-3 stages Kitchen units often require a direct supplier deposit; keep this separate from your labour deposit
Full rewire £3,000-£6,000 10-15% (£300-£900) Yes -- 2 stages Deposit covers consumer unit and cable; second payment at first fix; balance on test and completion
Single-storey extension £30,000-£60,000 5-10% (£1,500-£6,000) Yes -- 4-6 stages Formal contract essential; payments tied to visible milestones (foundations, DPC, roof, second fix, completion)
Double-storey extension £50,000-£100,000+ 5-10% (£2,500-£10,000) Yes -- 5-7 stages Must have a written contract; consider JCT Minor Works or FMB contract; always hold 5% retention
Loft conversion £25,000-£50,000 10-15% (£2,500-£7,500) Yes -- 4-5 stages Structural steel often needs ordering early -- deposit covers this
Plastering / decorating £500-£3,000 None or 10% for materials Rarely Most plasterers and decorators invoice on completion
Landscaping / driveways £3,000-£15,000 15-25% (£450-£3,750) Yes for larger jobs Materials (aggregate, block paving, turf) often need ordering and delivering before work starts
Roofing £3,000-£15,000 10-20% (£300-£3,000) Yes -- 2-3 stages Scaffolding hire and tile delivery are upfront costs

Legal considerations for deposits:

When should I use stage payments?

Use stage payments on any job over approximately £2,000 or any job lasting more than one week. The principle is simple: you should never be more than one stage of work ahead of what the customer has paid for.

Typical stage payment structures:

Two-stage (jobs £2,000-£5,000):

  1. Deposit: 20-25% on acceptance
  2. Balance: 75-80% on completion

Three-stage (jobs £5,000-£15,000):

  1. Deposit: 15-20% on acceptance
  2. Mid-point: 40-50% at agreed milestone (e.g., first fix complete, or halfway through the work)
  3. Balance: 30-40% on completion and sign-off

Five-stage extension/large project (jobs £15,000+):

  1. Deposit: 10% on acceptance
  2. Foundations/DPC: 20% when foundations poured and damp proof course laid
  3. Superstructure/watertight: 25% when walls up and roof on
  4. Second fix: 25% when plastering, electrics second fix, and plumbing second fix complete
  5. Completion and retention: 15% on practical completion, with 5% held back for 4-8 weeks as a snagging retention

Key principles:

How should I word payment terms in my quotes?

Using squote: squote includes payment terms on every PDF quote it generates — deposit amount, stage payments, and due dates — so the legal structure is built in from the first document the customer sees.

Include a dedicated Payment Terms section on every quote. Here are template wordings you can adapt:

For small jobs (no deposit, payment on completion):

Payment Terms

Payment is due within 7 days of completion of the works. Payment can be made by bank transfer to the account details shown on the invoice. Late payments may be subject to statutory interest under the Late Payment of Commercial Debts (Interest) Act 1998.

For medium jobs (deposit + balance):

Payment Terms

A deposit of £[amount] ([X]% of the quoted total) is required to secure your booking and confirm this quotation. The deposit is payable by bank transfer within 7 days of acceptance. The deposit covers the cost of materials ordered for your project and is non-refundable once materials have been ordered.

The remaining balance of £[amount] is due within 7 days of completion of the works.

Late payments may be subject to statutory interest at 8% above the Bank of England base rate, plus fixed compensation, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998.

For large jobs (stage payments):

Payment Terms

Payment for this project is structured in stages as follows:

  1. Deposit -- £[amount] ([X]%) on acceptance of this quotation
  2. Stage 2 -- £[amount] ([X]%) on completion of [milestone, e.g. "foundations and DPC"]
  3. Stage 3 -- £[amount] ([X]%) on completion of [milestone, e.g. "roof watertight"]
  4. Stage 4 -- £[amount] ([X]%) on completion of [milestone, e.g. "second fix complete"]
  5. Final payment -- £[amount] ([X]%) on practical completion, less 5% retention

Retention of £[amount] (5% of total) will be released 8 weeks after practical completion, subject to satisfactory completion of any snagging items.

Each stage payment is due within 7 days of notification that the relevant milestone has been reached. All payments by bank transfer.

Late payments may be subject to statutory interest at 8% above the Bank of England base rate, plus fixed compensation, in accordance with the Late Payment of Commercial Debts (Interest) Act 1998.

What do I do when a customer doesn't pay?

Follow this step-by-step process. Each step strengthens your position if you end up in court.

Step 1: Friendly reminder (Day 1-3 overdue)

Send a polite text, email, or phone call. Most late payments are oversight, not malice. Keep it professional:

Hi [Name], I hope the [work type] is all settling in well. Just a quick reminder that invoice [number] for £[amount] was due on [date]. Could you arrange payment at your earliest convenience? Bank details are on the invoice. Thanks, [Your name]

Step 2: Formal payment reminder (Day 7-14 overdue)

Send a written reminder by email (with read receipt if possible) and post:

Dear [Name],

I am writing regarding the outstanding payment for invoice [number] dated [date], in the amount of £[amount], which was due on [date].

As of today's date, this payment is now [X] days overdue. I would appreciate it if you could arrange payment within 7 days.

Please note that under the Late Payment of Commercial Debts (Interest) Act 1998, I am entitled to charge statutory interest on overdue commercial debts at a rate of 8% above the Bank of England base rate, together with fixed compensation.

If you are experiencing difficulties with payment, please contact me to discuss.

Yours sincerely, [Your name]

Step 3: Letter before action (Day 21-28 overdue)

This is a formal legal step. The courts expect to see that you sent a letter before action before filing a claim. Send it by recorded delivery and keep the proof of postage.

LETTER BEFORE ACTION

Dear [Name],

I am writing in relation to the sum of £[amount] owed to [Your business name / your name] for [description of work carried out] at [property address], as detailed in invoice [number] dated [date].

Despite previous reminders, this invoice remains unpaid. The payment was due on [due date] and is now [X] days overdue.

I am entitled to the following under the Late Payment of Commercial Debts (Interest) Act 1998:

  • Statutory interest of 8% above the Bank of England base rate (currently 11.75% per annum) from the date payment was due
  • Fixed compensation of £[40/70/100] per invoice

The total amount now due is £[original amount + interest + compensation].

If I do not receive payment in full within 14 days of the date of this letter, I will issue a claim through the County Court without further notice. Any court fees, further interest, and reasonable costs incurred in recovering this debt will be added to the claim.

I would prefer to resolve this matter without the need for court proceedings and would welcome the opportunity to discuss payment arrangements if needed.

Yours sincerely, [Your full name] [Your business name] [Your address] [Date]

Step 4: File a claim in the small claims court (Day 35+ overdue)

If the 14-day deadline passes with no payment or response:

  1. Go to Money Claim Online (www.gov.uk/make-money-claim) -- this is the cheapest and fastest way to file
  2. You will need the debtor's full name and address (the address where you did the work)
  3. Pay the court fee (£35-£455 depending on the amount -- you claim this back from the debtor)
  4. The court sends the claim to the debtor, who has 14 days to respond
  5. If they do not respond, you can request a default judgment -- the court orders them to pay
  6. If they dispute the claim, it goes to a small claims hearing (informal, no barristers needed, usually 1-2 hours)
  7. If you win, the court orders payment. If they still do not pay, you can use enforcement options: County Court bailiffs, attachment of earnings, or a charging order on their property

Court fees (2026, England and Wales):

Claim Amount Court Fee
Up to £300 £35
£300.01 - £500 £50
£500.01 - £1,000 £70
£1,000.01 - £1,500 £80
£1,500.01 - £3,000 £115
£3,000.01 - £5,000 £205
£5,000.01 - £10,000 £455

Important: Keep all evidence throughout this process -- the original quote, any written acceptance, photos of completed work, text messages, emails, the invoice, and proof of sending each letter.

Can I charge interest on late payments?

Yes. The Late Payment of Commercial Debts (Interest) Act 1998 gives you an automatic statutory right to charge interest on late payments between businesses. This applies to sole traders, partnerships, and limited companies -- essentially any business-to-business transaction.

Statutory interest rate:

Fixed compensation per invoice:

Debt Amount Compensation
Up to £999.99 £40
£1,000 - £9,999.99 £70
£10,000+ £100

Reasonable recovery costs: If your actual costs of chasing the debt (e.g., solicitor's letters, debt collector fees) exceed the fixed compensation amount, you can claim the difference.

Important notes:

For consumer (B2C) work: You can include a contractual late payment interest clause in your terms and conditions (e.g., "Interest will be charged at 4% above the Bank of England base rate on any payment more than 14 days overdue"). This must be a fair term under the Consumer Rights Act 2015 -- a rate that is excessively punitive may be unenforceable.

Frequently Asked Questions

Can I stop work if a stage payment is not made?

Yes. If a customer fails to make a stage payment that was agreed in writing, you are entitled to suspend work until payment is received. You should notify the customer in writing that you are suspending work due to non-payment and give them a reasonable opportunity (7 days) to pay before you stop. Under the Housing Grants, Construction and Regeneration Act 1996 (for contracts over 45 days), you have an explicit statutory right to suspend performance for non-payment, provided you give at least 7 days' notice.

Should I take a deposit from every customer?

Not necessarily. For small jobs under £500 where you are not buying significant materials upfront, payment on completion is the norm and taking a deposit can seem heavy-handed. For regular or repeat customers with a good payment history, you might waive the deposit as a goodwill gesture. However, for any job involving significant material orders, or for new customers with no track record, a deposit is strongly recommended.

What if the customer disputes the quality of my work?

A customer has the right under the Consumer Rights Act 2015 to expect that services are carried out with reasonable care and skill. If they withhold payment due to a genuine quality concern, you should address the issue first. Offer to inspect and remedy any defects. If you believe the work is to a reasonable standard and the customer is withholding payment without justification, document your position with photographs, follow the non-payment steps above, and let the court decide if it comes to that.

Do I need a written contract for every job?

There is no legal requirement to have a written contract, and a verbal agreement is legally binding. However, a written quote with clear payment terms that the customer has accepted (even by email or text) is vastly easier to enforce. For any job over £1,000, you should have written terms. For jobs over £10,000, a formal building contract (JCT Minor Works, FMB, or similar) is strongly advisable.

Can I add a surcharge for credit card payments?

No. Since January 2018, it has been illegal under the Payment Services Regulations 2017 to charge a surcharge for paying by credit or debit card. If card transaction fees affect your margins, build them into your pricing.

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